New syndicated Greek bond deal coming

Core bonds eked out gains yesterday with Bunds outperforming US Treasuries. The German economy ministry said that the weak level of orders and deteriorating business sentiment suggest that weakness in the manufacturing sector will persist. Traded volumes were extremely low even given Summer conditions, so we don't draw strong conclusions from the price action. The German yield curve bull flattened with yields down 0.6 bps (2-yr) to 5.7 bps (30- yr). The US yield curve shifted in similar fashion, shedding 1.7 bps (2-yr) to 3.6 bps (30-yr). 10-yr yield spreads changes vs Germany narrowed by up to 5 bps. Greece (flat) marginally underperformed its peripheral neighbors after the Hellenic Republic's announcement of the near term launch of a new 7-yr GGGB via syndication (likely today). The country's treasury profits from increased investor appetite after Draghi's June asset put extension. Spanish bonds didn't react to the political deadlock. Socialist PM Sanchez said that all talks with Podemos leader Iglesias were in vain. Sanchez' Socialists won't be able to gain next week's parliamentary majority in a confidence week with centre right Partido Popular and Ciudadanos unlikely to abstain. In that case, the constitutional clock starts the countdown to a new snap election unless the premier wins parliamentary approval within two months.Asian stock markets are mixed this morning with Japan underperforming (-0.5%) after returning from a long weekend. German Bunds continue to (marginally) outperform US Treasuries. News flow is thin. US Treasury Secretary Mnuchin and Trade Representative Lighthizer may travel to China for trade negotiations in case of productive talks by phone this week.

Today's eco calendar contains US retail sales and production data. Consensus expects (core) retail sales to rise by (0.3% M/M) 0.2% M/M following a strong month of May. Forecasts for industrial production stands only at 0.1% M/M. We expect for both numbers that the bar will at least be met. Better-than-expected data aren't expected to influence market thinking on near term Fed policy though. A 25 bps July rate cut is fully discounted. German ZEW investor sentiment will be released as well. Speeches by Fed's Bostic, Evans, Kaplan, Bowman and Powell are wildcards. Q2 earnings season continues with several US banks. We continue to argue in favour of consolidation in German/US yields in the near term with main eco data printed, ECB/Fed action priced in and Summer trading conditions kicking in. The German 10-yr yield last week's bounced higher after reaching a new all-time low around the ECB's deposit rate. First resistance appears around -0.03%/-0.13%. The US 10-yr yield managed to hold north of 2% after an intense test end of June/early July. First, small, resistance lures around 2.17%, with 2.33% being the more high profile test.

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